Russian ADRs Pare Fifth Weekly Decline on Ukraine Outlook

A helicopter flies on the position of the Ukrainian troops in Donetsk region. Investors pulled out of Russian assets as fighting continued in eastern Ukraine last week with NATO warning that Russian troops may cross the border under the “pretext” of a humanitarian mission. Photographer: Anatolii Stepanov/AFP/Getty Images

Aug. 11 (Bloomberg) -- Russian equities rebounded in New
York, trimming a fifth weekly decline, as President Vladimir
Putin’s government said it sought to de-escalate the conflict in
Ukraine that pushed valuations to a three-month low.

The Bloomberg Russia-US Equity Index rose 2.1 percent to
82.51 on Aug. 8. The measure fell 1.1 percent for the week,
posting the worst streak of losses since January. The Market
Vectors Russia ETF gained 2.5 percent to $23.79, paring its
five-day loss to 1.2 percent. Traders pulled $98 million from
the largest U.S. exchange-traded fund tracking the nation’s
shares in the past month, data compiled by Bloomberg show.

Stocks rose on Aug. 8 for the first time in four days as
the head of the Security Council said in comments to the state
news wire RIA Novosti that Russia is seeking to mediate between
Kiev and insurgents in Ukraine. Stocks fell earlier in the week
as Putin retaliated against countries that have imposed economic
sanctions tied to the conflict by barring imports of foods
ranging from Norwegian salmon to California-grown pistachios.

“If there is in fact de-escalation of the Ukraine crisis,
investors can make very good money by jumping in now, while
valuations are so low,” Liza Ermolenko, a London-based
emerging-market economist at Capital Economics, said by phone on
Aug. 8. “However, if one focuses on a mixture of signals out of
Russia for the past two weeks, everything points toward
escalation of the crisis. It looks like the worst is yet to
come.”

Sberbank, VTB

The Bloomberg index of the most-active Russian shares in
New York traded at 5.5 times projected 12-month earnings on Aug.
7, the lowest level since May 6.

OAO Mechel, Russia’s biggest supplier of coking coal used
in steel-making, was the best performer on Aug. 8, rising 4.1
percent to $1.78. The gain reduced the weekly decline to 4.8
percent. Mechel shares sank after the company, which is seeking
to avert bankruptcy amid a plunge in coal prices, on Aug. 6
reported a decline in first-half sales and Chairman Igor Zyuzin
rejected bank offers to trade company debt for his shares,
according to an Aug. 7 report by Vedomosti newspaper.

Futures on the dollar-denominated RTS index expiring next
month increased 1.6 percent to 118,590 in U.S. hours. The RTS
Volatility Index, which measures expected swings in index
futures, fell 4.3 percent to 34.01. United Co. Rusal, a Moscow-based aluminum producer, rose 2.5 percent to HK$4.05 in Hong
Kong trading as of 10:12 a.m. local time.

Import Ban

OAO Sberbank rose 3.9 percent to $7.97, reducing its weekly
drop to 2.7 percent. OAO VTB Bank fell 1.5 percent to $2.06 in
London, extending its five-day loss to 7.3 percent. MSCI Inc.,
after the close of trading in New York, said it kept the
companies in its Russia gauge after the U.S. and European Union
imposed sanctions blocking the purchase of new bonds or stocks
issued by the lenders. The restrictions “are not perceived as
an immediate concern,” the index company said in a statement.

Putin last week retaliated against measures intended to
hurt Russia’s economy by barring imports of food products
ranging from Norwegian salmon to California-grown pistachios.
The move came after the U.S. and western European nations
stepped up sanctions linked to the Ukraine conflict, targeting
the banking and energy industries with financing restrictions
and export bans.

“People are scared,” Oleg Popov, a money manager who
helps oversee $1 billion at Allianz Investments, the asset
management arm of Europe’s biggest insurer, said by phone from
Moscow. “The degree of uncertainty is so very high that it’s
hard to describe, and yet there is a talk of further sanctions,
which, if approved, would make things even worse.”

‘Serious Decline’

Investors pulled out of Russian assets as fighting
continued in eastern Ukraine last week with NATO warning that
Russian troops may cross the border under the “pretext” of a
humanitarian mission. Separatists and Ukrainian troops were
fighting in the city of Donetsk on Aug. 8.

“If Russia intervenes, whether its troops are marked as
so-called ‘peace keepers’ or like a regular army, there is going
to be a serious decline in the markets,” Slava Breusov, an
analyst at Alliance Bernstein LP in New York, said by phone on
Aug. 8.